TABLE 8 Conditions Conducive to Realizing Scenario 1

Factor

Condition

1. Exchange rates

Declining dollar

2. Cost of capital

Lower interest rates

3. Manufacturing

Increased manufacturing investment and U.S. industry productivity

4. Investment environment

Increased venture capital and long-term corporate investments

5. Asian markets

Better access to Japanese and Asian markets

6. U.S. marketing efforts

Massive global marketing effort by U.S. companies

7. Design intensity

Design-intensive technologies increase in value

8. Standards

Success of emerging global standards (ACE, SPARC, etc.)

and structural barriers. If the conditions described improve, U.S. companies will be under less pressure to enter alliances and would have more alternatives. American-Japanese alliances will be aimed at securing long-term financing, increased access to the large Japanese market, and manufacturing capacity. Large U.S. companies would be hesitant about foregoing future opportunities, whereas small "boutique" houses would become more attractive to Japanese investors. Although alliances could help facilitate a gradual U.S. recovery, they would not serve as the main driving force. Alliances are a supplement to, not a substitute for, healthy fundamentals in the private and public sectors.

SCENARIO 2: MARKET SHARE EQUILIBRIUM

In the second scenario (status quo), U.S. worldwide semiconductor market share would hover between 35 and 40 percent, which is where it is today. Maintaining a status quo, however, would require more U.S. effort to counterbalance a greater mobilization of resources in Japan and Asia. Rising Japanese R&D and plant investments probably would not forestall growing Asian strength in DRAMs and other commodity markets, whereas U.S. companies might be able to forestall shrinkage in market share by introducing new products faster. The key factors leading to an equilibrium scenario are listed in Table 9.

In this "business-as-usual" scenario, the number of U.S.-Japan alliances would continue to form at current rates and would fluctuate with business and product cycles. There would be no pressing external reason for U.S. companies to enter alliances—beyond those already at work—and no major new pressures on Japanese companies to help U.S. companies. However, the number of U.S.-Asian alliances might increase in response to emerging



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